Investment Structures

To decide on the best structure you should think about;
• Cost to set up and maintain structure
• asset protection
• capital gains tax implications
• Income splitting
• Your short and long term financial goals
SWM TIP: Prior to setting up an investment structure you should obtain professional advice.

Own Name

Most straightforward investment structure - involves holding investments in your own name.
• Easy to understand
• Inexpensive to establish and run
• Assets can be negatively/positively geared. (Positive gearing creates tax problem for high income earner)
• Entitled to Capital Gains Tax (CGT) 50% discount on any capital gain on sale of investment (as long as investment is held for more than 12 months)
• No income splitting permitted
• No asset protection – individual taxpayer is personally liable (I.e. personal assets are at risk)
• Income is assessed at your personal tax rate (advantage is tax rate is low / disadvantage if your tax rate is high)

ATO Links:
ATO Division 7A
ATO Income tax and deductions for small business

Discretionary Trusts

Investment structure where trustee (usually a company) has discretion when distributing funds on behalf of beneficiaries or members of that trust.
• Set up through a trust deed
• Assets are owned by the trust, not the individual beneficiaries
• There is no tax at trust level provided profits are distributed
• Ultimate asset protection is achieved when it has a corporate trustee
• Capital Gains Tax discount (50%) applies and flows through to beneficiaries
• Cannot distribute losses to beneficiaries
• No Land tax threshold available in NSW
• Interest deductions limited

Fixed Unit Trust

Investment structure where unit holders have a number of units in the trust; distribution is on the basis of the number of units held.
• Set up through a trust deed
• Beneficiaries can borrow to buy units and benefit from negative gearing
• Cannot distribute losses to unit holders
• Income and capital distribution are proportional to the percentage of units held

Hybrid Discretionary Trust

Is a combination between a discretionary trust and a unit trust.
• Set up through a trust deed
• Allows individual to negative gear
• Capital Gains can be distributed to beneficiaries
• Allows for asset protection, quarantining of negative gearing, refinancing and flexible distributions of income and capital in the future

Superannunation

Your super is your investment for your retirement.
• Set up through a trust deed
• Provide you with total control over how your super is invested
• Offers investors access to a low tax rate (15% on income less imputation credits), discount capital gains (in effect 10%) and asset protection
• Superannuation cannot provide negatively gearing benefits nor income splitting.
• fund members do not have access to the money until retirement
• Super funds can now borrow to invest.

ATO Links:

ATO Superannuation Information
ATO Changes to super - what you need to know
ATO SMSF - Role and responsibilities of trustees
ATO SMSF checklist